While Greenspan's remarks Thursday to the Senate Banking Committee left the door open to higher interest rates, Wall Street investors and economists viewed them as an encouraging sign that the central bank's 13-month anti-inflation campaign may be nearing an end.

During that period, the Fed has raised interest rates six times in an effort to slow the economy and consumer spending, which accounts for two-thirds of all economic activity.

Presenting the Fed's midyear economic report to Congress, Greenspan said the pace of spending by consumers on goods and services may be moderating, helping to bring demand more in line with the economy's ability to produce. In addition, the most interest-rate-sensitive sector of the economy - housing - appears to be cooling.

''It is clear that, for the time being at least, the increase in spending on consumer goods and houses has come down several notches, albeit from very high levels,'' Greenspan said.

In the latest evidence that the Fed's interest-rate increases are slowing the economy, the Commerce Department reported Thursday that housing construction fell 3 percent in June to a seasonally adjusted annual rate of 1.55 million, the lowest level in more than two years.

On Wall Street, stocks surged as investors, emboldened by Greenspan's encouraging remarks on the economy, poured back into the markets after two days of losses. The Dow Jones industrial average gained 147.79 points to close at 10,843.87. The Nasdaq rose 128.93 to 4,184.56.

Economists also were encouraged. ''It sounds as if he is inclined to keep rates on hold at the Aug. 22 Fed meeting unless there is some disturbing news between now and then,'' said First Union's chief economist, David Orr.

Added Merrill Lynch's chief economist, Bruce Steinberg: ''In our opinion, the Fed has successfully engineered a soft landing and no more tightening will be necessary.''

Even with the promising signs that the economy - in its longest-ever streak of uninterrupted growth - is slowing, inflation risks remain, Greenspan said.

He raised concerns that the tight labor market could lead workers to demand big boosts in wages and benefits - costs that could be passed along to consumers as higher prices.

''It is much too soon to conclude that these concerns are behind us,'' Greenspan said.

Thus far, labor costs have been held in check by healthy gains in worker productivity, he said. Productivity growth, the amount of output per hour of work, helps keep inflation low by allowing employers to pay for higher salaries through increased production rather than raising prices.

Even so, Greenspan said, inflation including the ''core'' rate, which excludes energy and food has worsened.

''Higher rates of core inflation may mostly reflect the indirect effects of energy prices,'' he said.

Economists expect energy prices to ease in coming months on the expectation that oil-producing nation will boost output.

In the meantime, Greenspan said energy prices ''may pose a challenge to containing inflation,'' but only to the extent that they may increase expectations of rising price pressures in the future. That has not happened, he said.

Greenspan repeated his oft-stated position that the big budget surpluses being produced by the economic boom should go to reduce the national debt, rather than pay for tax cuts or new spending programs.

''A number of the potential programs, both expenditures and tax cuts in the pipeline, do give me some concern,'' Greenspan said.

Answering senators' questions, he criticized legislation that would impose economic sanctions against China for weapons proliferation. He said the measure would hurt the United States than to China. ''Most importantly, to the extent we block foreigners from investing funds in the U.S., we probably violate the viability of our system,'' he said.

As part of his testimony, Greenspan presented the Fed's revised economic forecast for 2000. The Fed predicted the gross domestic product will expand by about 4 percent to 4.5 percent this year, compared with 4.2 percent in 1999. For 2001, growth was projected to slow to about 3.25 percent to 3.75 percent.

The central bank forecast inflation will worsen slightly this year, with a GDP-related inflation gauge rising around 2.50 percent to 2.75 percent, compared with an increase of 2 percent last year.